Contradictory Theses

I open this chapter in my real-time experiment (in the same vein as George Soros–although nowhere near the same level of sophistication and scale definitely) just to air out the contradictions I’m trading now, which is keeping me a little on edge. Meanwhile apart from the hedge I’ve implemented on the trading, I can’t really say there is more I can do now other than just play out my strategy until further evidence asserts itself.

I’ve been playing a general thesis of stronger US dollar and a weaker Europe, not because I have faith in the US economy, but only because I expected deleveraging to continue driving money into US dollars–and an additional note that I also think that the credit problems in Europe have not been highlighted yet. Further to this, I’ve taken a long position in US Dollars against Swiss Francs, and a short position in Euros against Australian Dollars. When combined, these positions have only been generally a wash, with my losses in USDCHF longs offset by gains in EURAUD shorts. I’m still holding on to this thesis until seasonal lows in August and September, and will reconsider lifting them come October–which is a usual inflection point for many markets.

The strength in commodity and stock markets have been a surprise, as I’ve been expecting a general correction since April, which would have driven demand to the US Dollar (and helped my longs). Given this, I’ve been forced to take a long GBPJPY position–which is contradictory to my prevailing thesis–but it serves as a hedge for now, and also helps keep my position volatility at a minimum while I reconsider next moves.

On the macro level, COT commitment reports still support my strong USD view, although the market has yet to confirm it. In the meantime, I’m keeping my hedge until the expected monthy seasonality presents itself. Either way, all my positions are carry-trade positive, so at least I get a small cushion of interest while I let the markets play away.

More to follow.